"Walk me through a sum-of-the-parts valuation" is a common interview prompt for diversified or conglomerate-style companies, and it tests something narrower than raw valuation mechanics: whether you understand that not every business segment deserves the same multiple. Here is a structured way to approach it under interview conditions.
Step 1: Identify and Segment the Business
Start by naming the distinct operating segments the company reports — most public conglomerates disclose segment-level revenue and EBITDA in their financial statements specifically to make this kind of analysis possible. Also note any unallocated corporate costs that sit above the segments (shared services, headquarters overhead) since these need to be valued too, typically as a negative value.
Step 2: Assign a Peer Multiple to Each Segment
For each segment, identify the closest set of stand-alone public comparables and derive an appropriate EV/EBITDA (or occasionally EV/Revenue) multiple — the same process used in a standalone comparable company analysis. A software segment should get a software peer multiple, an industrial segment should get an industrial peer multiple, and so on. This is the step interviewers are usually most focused on: do you understand why a blended, company-wide multiple would misprice a diversified business?
Step 3: Value Each Segment and Sum the Results
Multiply each segment's EBITDA by its assigned multiple to get a segment-level Enterprise Value, then add all the segment values together — including the negative value for corporate overhead — to arrive at a total, sum-of-the-parts Enterprise Value for the company.
Step 4: Bridge to Equity Value
Enterprise Value isn't the final answer. Subtract net debt and minority interest (the portion of any partially-owned segment that belongs to outside shareholders, not the parent) to get to Equity Value, then divide by shares outstanding for a per-share figure. This is the same bridge used in most valuation methodologies, including precedent transactions analysis — it's easy to forget under interview pressure, but skipping it is one of the fastest ways to lose credibility with an interviewer.
Step 5: Compare to the Trading Price
Once you have a SOTP-implied value, the natural follow-up is comparing it to where the stock actually trades. If the SOTP value sits meaningfully above the market cap, be ready to discuss the conglomerate discount and why it might exist — complexity, cross-subsidization, or lack of pure-play investability are all fair answers.
To practice this exact sequence with real segment financials, worked formulas, and a full model answer, try the Sum-of-the-Parts Valuation case.